Economy of Switzerland
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| Economy of Switzerland | ||
|---|---|---|
| Currency | Swiss Franc (CHF) | |
| Fiscal year | Calendar year | |
| Trade Organisations | OECD, WTO, EFTA, JEC | |
| Statistics | ||
| GDP Ranking (2007) | 36th [1] | |
| GDP (2006) | CHF486.2, $371.5 billion [2] | |
| GDP growth rate (2006) | 4.9% nominal, 3.2% real | |
| GDP per Capita (Q2 '04 annualised) | $33,800 | |
| GDP by sector (2004) | agriculture (1.5%), industry (34.0%), services (64.5%) | |
| Inflation rate (Q1 2006) | 1.4% | |
| Pop below poverty line (2005) | 3.3%[3] | |
| Labour force (June 2004) | 3.8mio [4] | |
| Labour force by occupation (2002) | agriculture (4.6%), industry (26.3%), services (69.1%) | |
| Unemployment rate (2007 est) | 2.5% | |
| Main Industries | machinery, chemicals, watches, textiles, precision instruments | |
| Trading Partners | ||
| Exports | $130.7 billion (2004 est) | |
| Main Partners (2004 est) | Germany 20%, US 9.1%, France 9.1%, Italy 8.8%, UK 4.9% | |
| Imports | $121.1 billion (2004 est) | |
| Main Partners (2004 est) | Germany 29%, Italy 11.8%, France 11.1%, US 7.6%, Austria 4.5%, UK 4.5%, Netherlands 4.3% | |
| Public Finances | ||
| Public Debt (2005) | 57.2% of GDP | |
| External Debt (2005 est) | $NA | |
| Revenues (2004) | $131.5 billion | |
| Expenses (2004) | $140.4 billion | |
| Economic Aid (ODA) (1997) | $1.1 billion | |
The economy of Switzerland is one of the world's most stable economies. Its policy of long-term monetary security and bank secrecy has made Switzerland a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Because of the country's small size and high labour specialisation, industry and trade are the keys to Switzerland's economic livelihood. Switzerland has achieved one of the highest per capita incomes in the world with low unemployment rates and a low budget deficit as a result of its finance industry. The service sector has also come to play a significant economic role.
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[edit] History
As an effect of the industrial revolution which began in England at the beginning of the 19th century, Switzerland's agrarian sector decreased in size and thus the industrial sector started to increase in size from the mid 19th century on.
In the 1900s and by the beginning of the 20th century Switzerland's industrial sector was the largest and Switzerland was the wealthiest country in Europe by a considerable margin.
In the 1910s however, during World War I Switzerland suffered an economic crisis which on one side was marked by a decrease in energy consumption of energy which was mostly produced by coal in the 1910s, 1920s, 1930s and 1940s. In addition to that the war tax was introduced. As Imports were difficult, attempts were made to strengthen the Swiss economy. The cultivation of grain was promoted, and the Swiss railway became the first to use electric instead of coal-burning, steam-driven engines.
In the 1920s Switzerland's energy consumption increased.
Throughout the 1930s Switzerland's energy consumption stagnated.
In the 1940s, particularly during World War II the economy profited from the increased export and delivery of weapons to the German Reich. However, Switzerland's energy consumption decreased rapidly. The conduct of the banks cooperating with the Nazis and the commercial relations with the axis powers during the war became the subject of sharp criticism to such an extent, which even resulted in a short term international isolation of Switzerland from the world. After World War II, Switzerland's production facilities remained to a great extent undamaged which facilitated the country's swift economic resurgence.
In the 1950s, annual GDP growth averaged 5% and Switzerland's energy consumption doubled. Coal lost its rank the Switzerland's primary energy source, as other fossil fuels such as crude and refined oil and natural and refined gas imports increased. This decade also marked the advent of a transition from an industrial economy to a service economy. Since then the service sector has been growing faster than the agrarian and industrial sectors.
In the 1960s, annual GDP growth averaged 4% and Switzerland's energy consumption doubled. By the end of the decade oil was Switzerland's primary energy source.
In the 1970s GDP growth rates gradually declined from a peak of 6.5% in 1970 until contracting 7.5% in 1975 and 1976. Switzerland became increasingly dependent on oil imported from its main supplier, the OPEC cartel as a result of the exponential fourfold multiplication of energy demand from the 1950s to the 1970s. The 1973 international oil crisis caused Switzerland's energy consumption to decrease from 1973 to 1977. As an example, in 1974 there were three nationwide car free Sundays when private transport was prohibited as a result of the oil supply shock. From 1977 onwards GDP grew, however Switzerland was also affected by the 1979 energy crisis which resulted in a short term decrease of Switzerland's energy consumption.
In the 1980s, Switzerland was affected by the hike in oil prices which resulted in a decrease of energy consumption until 1982 when the economy contracted by 1.3%. From 1983 on both GDP and energy consumption grew.
In the 1990s, Switzerland's economy was marred by slow growth, having the weakest economic growth in Western Europe which was marked by 3-year-recession from 1991 to 1993 when the economy contracted by 2%, also mirrored by a decrease in Switzerland's energy consumption and export growth rates. Switzerland's economy averaged no appreciable increase (only 0.6% annually) in gross domestic product (GDP). After having unemployment rates lower than 1% prior to 1990 the 3-year-recession also caused the unemployment rate to rise to its all-time-peak of 5.3% in 1997. And thus as of 2008 Switzerland is only on the fourth place among European countries with populations above one million in terms of nominal Gross Domestic Product per capita, behind Ireland, Denmark and Norway and to tenth place in terms of GDP per capita at purchasing power parity (see list). On numerous occasions in the 1990s real wages decreased since nominal wages couldn't keep up with inflation. However, beginning in 1997, a global resurgence in currency movement provided the necessary stimulus to the Swiss economy. It slowly gained momentum and peaked in the year 2000 with 3.2% growth in real terms.
In the early 2000s, being so closely linked to the economies of Western Europe and the United States, Switzerland was not able to escape the slowdown felt in these countries. After the worldwide stock market crashes in the wake of the 9/11 terrorism attacks there were more announcements of false enterprise statistics and exaggerated managers' wages. In 2001 the rate of growth dropped to 0.9%, to 0.4 % in 2002 and in 2003 the real GDP contracted by 0.5%. That economic slowdown has had a noticeable impact on the labour market. Many companies announced mass dismissals and thus the unemployment rate rose from its low of 1.9% in June 2000 to its peak of 3.9% in October 2004, although well below the European Union (EU) unemployment average of 8.9%. The consumer mood worsened and domestic consumption decreased. The exports of goods and services in the EU and the USA decreased as a result of the Swiss Franc's appreciation in value which caused an increase in prices of exported goods and services. On the other hand Switzerland's tourism sector slumped and room occupation rates by foreign guests decreased. Besides that a deficit of market competition in many branches of Switzerland's economy persisted.
On the 10.11.2002 the economics magazine Cash publicized 5 measures, which political and economic actors should implement, so that Switzerland would once again experience an economic revival:
1. Private consumption should be promoted with decent wage increases. In addition to that families with children should get discounts on their health insurances.
2. Switzerland's national bank should revive investments by lowering interest rates. Besides that monetary institutes should increasingly credit consumers and offer cheaper land zones which are to be built on.
3. Switzerland's national bank is asked to devalue the Swiss Franc, especially compared to the Euro.
4. The government should implement the anticyclical measure of increasing budget deficits. Government spending should increase in the infrastructural and educational sectors. Lowering taxes would make sense in order to promote private household consumption.
5. Work should be flexibilised with new working plans. And thus in case of low demand dismissals could be avoided.
These measures were applied with successful results along with the government's policy of the Magical Hexagon which consists of full employment, social equality, economic growth, environmental quality, positive trade balance and price stability. Economic performance recovered and remained solid as of 2008.
This is a chart of trend of gross domestic product of Switzerland at market prices estimated by the International Monetary Fund with figures in millions of Swiss Francs.
| Year | Gross Domestic Product | US Dollar Exchange |
|---|---|---|
| 1980 | 183,077 | 1.67 Francs |
| 1985 | 242,045 | 2.43 Francs |
| 1990 | 327,584 | 1.38 Francs |
| 1995 | 372,250 | 1.18 Francs |
| 2000 | 415,529 | 1.68 Francs |
| 2005 | 456,859 | 1.24 Francs |
| 2006 | 471,781 | 1.25 Francs |
[edit] Defining characteristics
[edit] Trade
Apart from industry, trade has been the key to prosperity in Switzerland. The country is dependent upon exports to generate income and on imports for raw materials and goods. With the notable exception of a strict policy of agricultural protectionism, Switzerland has liberal trade and investment policies. An expansive commercial and bank law system makes Switzerland one of the most secure investment places in the world. The Swiss franc is one of the world's soundest currencies, and the country is known for its high standard of Swiss banking and financial services.
Exports are of great importance to the Swiss economy, since it earns roughly half of its corporate earnings from the export industry. The machinery, electronics, chemical products, precision instruments, insurance and banking services and tourism sectors are essentiall Swiss exports. Together, they account for well over half of Switzerland's export revenues. About 60% of Swiss exports are destined for the EU market. Germany is the largest importer of Swiss goods and services (20.8%). Germany exports more to Switzerland each year than to all the countries of the former Soviet Union and Eastern Europe combined. The U.S. is the second-largest importer of Swiss goods and services (11.0%). The U.S. is also the largest foreign investor in Switzerland, and conversely, the primary destination of Swiss foreign investment. It is estimated that 200,000 American jobs depend on Swiss foreign investments. One fourth of Switzerland's workforce consists of foreign labour.
Imports of natural resources are important for Switzerland, as these can't be produced domestically in sufficient amounts. Raw materials, chemicals, fossil fuels such as oil, machines, electoric goods, precision instruments and vehicles comprise Swiss imports. About 80% of Swiss imports originate from the EU and 6.3% of Swiss imports originate in the U.S. Switzerland ranks 18th among the main trading partners of the U.S. worldwide. The country is approximately 60% self-sufficient in foodstuffs, taking only 7.5% of foodstuff imports from the U.S.
[edit] Agricultural protectionism
Switzerland is extremely protective of its agricultural industry. High tariffs and extensive domestic subsidisations ensure that the country will remain largely self sufficient agriculturally. According to the Organisation for Economic Co-operation and Development (OECD), Switzerland is subsidizing more than 70% of its agriculture compared to 35% in the EU. The 2007 Agricultural Program, recently adopted by the Swiss Federal Assembly, will increase subsidies by SF 63 million to SF 14.092 billion.
The stringent policy of agricultural protectionism is generally harmful to the workforce[citation needed]. Domestic agriculture will monopolise labour that can be better deployed elsewhere and acts as a shield against beneficial import of labour[citation needed]. Consequently, Switzerland has a high cost of living in not only food but also rents, since much land needed for human occupation is retained by farms. About 40% of Switzerland is used for agricultural purposes.
[edit] Tourism
Switzerland has a highly developed tourism infrastructure, making it a good market for tourism-related equipment and services. Tourism contributes about SF 1.5 billion to the Swiss economy every year.
[edit] Workforce
The Swiss economy is characterised by a skilled and peaceful workforce. One quarter of the country's full-time workers are unionised. Labour and management relations are amicable, characterised by a willingness to settle disputes instead of resorting to labour action. About 600 collective bargaining agreements exist today in Switzerland and are regularly renewed without major problems.
With the peak of the number of bankruptcies in 2003, however, the mood was pessimistic. Massive layoffs and dismissals by enterprises resulting from the global economic slowdown, major management scandals and different foreign investment attitudes have strained the traditional Swiss labour peace. Swiss trade unions have encouraged strikes against several companies, including Swiss International Air Lines, Coca-Cola, and Orange. Total days lost to strikes, however, remain among the lowest in the OECD.
[edit] Income
Switzerland is among the world's most prosperous countries in terms of private income. In 2005 the median household income in Switzerland was an estimated 95,000 CHF (or US$55,000 at purchasing power parity), which is similar to wealthy American states like California and Vermont[1].
[edit] Economic policy
[edit] Terrorism
Through the United States-Swiss Joint Economic Commission (JEC), Switzerland has passed strict legislation covering anti-terrorism financing and the prevention of terroristic acts, marked by the implementation of several anti-money laundering procedures and the seizure of al-Qaeda accounts. Continued relationship with the United States through the JEC has brought the Swiss economy into closer proximity with that of the Western world, with mutualistic goals in terrorism prevention providing the impetus.
[edit] European Union
Apart from agriculture, economic and trade barriers between the European Union and Switzerland are minimal. In the wake of the Swiss voters' rejection of the European Economic Area Agreement in 1992, the Swiss Government set its sights on negotiating bilateral economic agreements with the EU. Four years of negotiations culminated in Bilaterals, a cross-platform agreement covering seven sectors: research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons. Parliament officially endorsed the Bilaterals in 1999 and it was approved by general referendum in May 2000. The agreements, which were then ratified by the European Parliament and the legislatures of its member states, entered into force on June 1, 2002. The Swiss government has since embarked on a second round of negotiations, called the Bilaterals II, which will further strengthen the two organisations' economic ties.
Switzerland has since brought most of their practices into conformity with European Union policies and norms in order to maximise the country's international competitiveness. While most of the EU policies are not contentious, police and judicial cooperation to international law enforcement and the taxation of savings are controversial, mainly because of possible side effects on bank secrecy.
Swiss and EU finance ministers agreed in June 2003 that Swiss banks would levy a withholding tax on EU citizens' savings income. The tax would increase gradually to 35% by 2011, with 75% of the funds being transferred to the EU. Recent estimates value EU capital inflows to Switzerland to $8.3 billion.
[edit] Institutional membership
Switzerland is a member of a number of international economic organizations, including the United Nations, the World Trade Organization, the International Monetary Fund, the World Bank, and the Organisation for Economic Co-operation and Development.
[edit] See also
- Merchant Marine of Switzerland
- Economy of Europe
- Federation of the Swiss Watch Industry FH
- 2000 Watt society
- Swiss National Bank
[edit] References
- ^ CIA GDP ranking. Retrieved on 2008-01-09.
- ^ International Monetary Fund.
- ^ see poverty in Switzerland
- ^ CIA Factbook Swiss Economy
[edit] External links
- OECD's Switzerland country Web site and OECD Economic Survey of Switzerland
- SWISS MARKET IND
- Swiss Federal Statistical Office
- Gross Domestic Product Growth - Switzerland
- Swiss Economic Forecasts
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